Two Kinds Of Breakouts
I saw two
stocks, Hotel Reservations Network (ROOM)
and Triton Energy (OIL),
stage powerful breakouts yesterday (6/25/01). ROOM rallied out of an ascending
triangle and closed at a new high. Volume was impressively heavy, nearly six
times its daily average (see chart below). OIL, also with strong volume, made an
expansion breakout above its 20-day moving average and closed just below the
high set on June 13 (chart below). Naturally, I have decided to follow these
stocks today (6/26/01). Are they going to follow through, even though some
traders will be sidelined because of the Fed meeting today and tomorrow?  Â
At 1:45 p.m., ROOM took out yesterday’s high and quickly gained more than one
point in less than 15 minutes (chart below). Also, this breakout was accompanied
by increased volume.Â
But OIL could not take out the June 13 high (chart below). The red line
indicates the level of the June 13 high.Â
Why couldn’t OIL successfully take out the high? The answer is “overhead
supply.” The high set on June 13 became a resistance level. But for ROOM,
there was no overhead supply. That is why traders love to trade new-high stocks.